QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September
30, 2017

or

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For
the transition period from ___ to ___

Commission File Number: 001-37527

XCEL BRANDS, INC.

(Exact name of registrant as specified in
its charter)

Delaware

76-0307819

(State or Other Jurisdiction of

(I.R.S. Employer

Incorporation or Organization)

Identification No.)

1333 Broadway, 10th Floor, New York, NY 10018

(Address of Principal Executive Offices)

(347) 727-2474

(Issuer's Telephone Number, Including Area
Code)

Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x
No ¨

Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer ¨

Smaller reporting company x

Emerging growth company x

If an emerging growth company, indicate
by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by a check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of November
7, 2017, there were 18,456,801 shares of common stock, $.001 par value per share, of the issuer outstanding.

Common stock, $.001 par value, 35,000,000 shares authorized at September 30, 2017 and December 31, 2016, and 18,468,801 and 18,644,982 issued and outstanding at September 30, 2017 and December 31, 2016, respectively

18

19

Paid-in capital

98,886

97,354

Retained earnings

8,867

8,801

Total Stockholders' Equity

107,771

106,174

Total Liabilities and Stockholders' Equity

$

146,602

$

151,120

See Notes to Unaudited Condensed Consolidated
Financial Statements.

3

Xcel Brands, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements
of Operations

(in thousands, except share and per share
data)

For the Three Months

For the Nine Months

Ended September 30,

Ended September 30,

2017

2016

2017

2016

Net revenues

$

7,890

$

8,320

$

24,690

$

25,793

Operating costs and expenses

Salaries, benefits and employment taxes

4,079

4,054

12,806

12,481

Other design and marketing costs

287

779

1,803

2,439

Other selling, general and administrative expenses

1,188

1,175

3,602

4,540

Stock-based compensation

690

1,089

2,496

3,754

Depreciation and amortization

389

387

1,173

1,172

Total operating costs and expenses

6,633

7,484

21,880

24,386

Operating income

1,257

836

2,810

1,407

Interest and finance expense

Interest expense - term debt

273

340

905

1,003

Other interest and finance charges

41

122

135

424

Total interest and finance expense

314

462

1,040

1,427

Income (loss) before income taxes

943

374

1,770

(20

)

Income tax provision (benefit)

691

256

1,704

(3

)

Net income (loss)

$

252

$

118

$

66

$

(17

)

Basic net income (loss) per share

$

0.01

$

0.01

$

0.00

$

(0.00

)

Diluted net income (loss) per share

$

0.01

$

0.01

$

0.00

$

(0.00

)

Basic weighted average common shares outstanding

18,470,977

18,692,775

18,530,963

18,608,034

Diluted weighted average common shares outstanding

18,872,753

19,068,011

18,896,418

18,608,034

See Notes to Unaudited Condensed Consolidated
Financial Statements.

4

Xcel Brands, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements
of Cash Flows

(in thousands)

For the Nine Months Ended September 30,

2017

2016

Cash flows from operating activities

Net income (loss)

$

66

$

(17

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

The accompanying condensed consolidated
balance sheet as of December 31, 2016 (which has been derived from audited financial statements) and the unaudited interim condensed
consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States (“GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X promulgated by the United States Securities and Exchange Commission (“SEC”). Certain information or footnote disclosures
normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules
and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes
necessary for a comprehensive presentation of financial position, results of operations, or cash flows.

In
the opinion of management, the accompanying unaudited condensed consolidated financial statements were prepared following the same
policies and procedures used in the preparation of the audited consolidated financial statements and reflect all adjustments (consisting
of normal recurring adjustments) necessary to present fairly the results of operations, financial position, and cash flows of Xcel
Brands, Inc. (“Xcel”) and its subsidiaries (the “Company”). The results of operations for the interim
periods presented herein are not necessarily indicative of the results for the entire fiscal year or for any future interim periods. These
unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form
10-K for the year ended December 31, 2016, as filed with the SEC on March 24, 2017.

The Company is a media and consumer products
company engaged in the design, production, licensing, marketing, and direct to consumer sales of branded apparel, footwear, accessories,
jewelry, home goods, and other consumer products, and the acquisition of dynamic consumer lifestyle brands. Currently, the Company’s
brand portfolio consists of the Isaac Mizrahi brand (the "Isaac Mizrahi Brand"), the Judith Ripka brand (the “Ripka
Brand”), the H by Halston and H Halston brands (collectively, the “H Halston Brands”), the C Wonder brand (the
“C Wonder Brand”), and the Highline Collective brand.

The Company licenses its brands to third
parties, provides certain design, production, and marketing services, and generates licensing, design, and service fee revenues
through contractual arrangements and other agreements with manufacturers and retailers. These activities include licensing its
own brands for promotion and distribution through a ubiquitous retail sales strategy, which encompasses distribution through interactive
television, the internet, and traditional brick-and-mortar retail channels.

Certain reclassifications have been made
to the prior period unaudited condensed consolidated financial statements to conform to the current period presentation, including:

·

Presentation of e-commerce gross margin within total net revenues on the condensed consolidated
statements of operations. Of the $41,000 of costs previously presented as cost of goods sold for the three months ended September
30, 2016, $10,000 has been reclassified to net revenues, and $31,000 has been reclassified to other selling, general and administrative
expenses. Of the $147,000 of costs previously presented as cost of goods sold for the nine months ended September 30, 2016, $46,000
has been reclassified to net revenues, and $101,000 has been reclassified to other selling, general and administrative expenses.

·

Presentation of restricted cash on the condensed consolidated statements of cash flows for
the nine months ended September 30, 2017,
as a
result of the
early
adoption of
Accounting Standards Update No. 2016-18 in the fourth quarter of 2016.

For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December
31, 2016.

Recent Accounting Pronouncements

In May 2017, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update No. 2017-09, Stock Compensation (Topic 718): Scope of Modification
Accounting (“ASU 2017-09”). ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based
payment award require an entity to apply modification accounting in Topic 718. An entity should account for the effects of a modification
unless all the following conditions are met: (i) the fair value of the modified award is the same as the fair value of the original
award immediately before the original award is modified; (ii) the vesting conditions of the modified award are the same as the
vesting conditions of the original award immediately before the original award is modified; and (iii) the classification of the
modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately
before the original award is modified. This new accounting guidance is effective for public companies for fiscal years beginning
after December 15, 2017 (i.e., calendar years beginning on January 1, 2018), including interim periods within those fiscal years.
Early adoption is permitted in any interim or annual period. The amendments in ASU 2017-09 should be applied prospectively to an
award modified on or after the adoption date. The adoption of ASU 2017-09 is not expected to have a significant impact on the Company’s
consolidated financial statements.

6

XCEL BRANDS, INC.
AND SUBSIDIARIES

Notes to Unaudited
Condensed Consolidated Financial Statements

September 30,
2017

(Unaudited)

In May
2014, FASB issued ASU No. 2014-09,Revenue from Contracts with Customers(“ASU
2014-09”), requiring revenue to be recognized in an amount that reflects the consideration expected to be received in exchange
for goods and services. This new revenue standard may be applied retrospectively to each prior period presented, or retrospectively
with the cumulative effect recognized as of the date of adoption. In August 2015, FASB issued ASU No. 2015-14, Revenue from
Contracts with Customers – Deferral of the Effective Date (“ASU 2015-14”), which defers implementation
of ASU 2014-09 by one year. Under such deferral, the adoption of ASU 2014-09 becomes effective for us on January 1, 2018, including
interim periods within that reporting period. Early adoption is permitted, but not before our original effective date of January
1, 2017. Our evaluation of the impact of the adoption of ASU 2014-09 on our consolidated financial statements is ongoing and our
implementation efforts have included the identification of revenue within the scope of the guidance and the evaluation of applicable
revenue contracts. Currently, based on our preliminary analyses, we do not expect the adoption of ASU 2014-09 to result in material
differences from the Company’s current revenue recognition policies; however, our analyses are not final. The Company recognizes
revenue continuously over time as it satisfies its continuous obligation of granting access to its licensed intellectual properties.
Revenue, depending on the contract, is recognized ratably over each contract year as the performance occurs based on the greater
of the guaranteed minimum payments, sales-based payments, or performance based payments, with each contract year treated as separate
from the other years.

2.

Trademarks, Goodwill and Other Intangibles

Trademarks and other intangibles, net consist of the following:

Weighted-
Average

September 30, 2017

($ in thousands)

Amortization
Period

Gross
Carrying
Amount

Accumulated

Amortization

Net
Carrying

Amount

Trademarks (indefinite-lived)

n/a

$

96,700

$

-

$

96,700

Trademarks (definite-lived)

15 years

15,463

2,231

13,232

Licensing agreements

4 years

2,000

2,000

-

Non-compete agreement

7 years

562

221

341

Copyrights and other intellectual property

10 years

190

67

123

Total

$

114,915

$

4,519

$

110,396

Weighted-
Average

December 31, 2016

($ in thousands)

Amortization
Period

Gross
Carrying
Amount

Accumulated

Amortization

Net
Carrying

Amount

Trademarks (indefinite-lived)

n/a

$

96,676

$

-

$

96,676

Trademarks (definite-lived)

15 years

15,463

1,459

14,004

Licensing agreements

4 years

2,000

2,000

-

Non-compete agreement

7 years

562

160

402

Copyrights and other intellectual property

10 years

190

52

138

Total

$

114,891

$

3,671

$

111,220

7

XCEL BRANDS, INC.
AND SUBSIDIARIES

Notes to Unaudited
Condensed Consolidated Financial Statements

September 30,
2017

(Unaudited)

Amortization expense for intangible assets
was approximately $283,000 and $282,000 for the quarters ended September 30, 2017 (the “Current Quarter”) and September
30, 2016 (the “Prior Year Quarter”), respectively. Amortization expense for intangible assets for the nine months ended
September 30, 2017 (“Current Nine Months”) and the nine months ended September 30, 2016 (the “Prior Year Nine
Months”) was approximately $848,000 and $847,000, respectively.

The trademarks related to the Isaac Mizrahi
Brand, the Ripka Brand, and the H Halston Brands have been determined to have indefinite useful lives and, accordingly, no amortization
has been recorded for these assets.

The Company has $12.371 million of goodwill
related to the 2011 acquisition of the Isaac Mizrahi business. There was no change in goodwill during the Current Nine Months.

3.

Significant Contracts

QVC Agreements

Under the Company’s agreements with
QVC, QVC is required to pay the Company fees based primarily on a percentage of its net sales of Isaac Mizrahi, Ripka, H Halston,
and C Wonder branded merchandise. QVC royalty revenue represents a significant portion of the Company’s total revenues. Net
revenues from QVC totaled $6.32 million and $6.87 million for the Current Quarter and Prior Year Quarter, respectively, representing
approximately 80% and 83% of the Company’s net revenues, respectively. Net revenues from QVC totaled $20.33 million and $21.82
million for the Current Nine Months and the Prior Year Nine Months, respectively, representing approximately 82% and 85% of the
Company’s net revenues, respectively. As of September 30, 2017 and December 31, 2016, the Company had receivables from QVC
of $6.45 million and $5.89 million, respectively, representing approximately 68% and 85% of the Company’s total receivables,
respectively.

On April 28, 2017, the Company and QVC
entered into an amendment to terminate the C Wonder QVC Agreement effective May 1, 2017 and commence a sell-off period. During
the sell-off period, QVC remains obligated to pay royalties to the Company through January 31, 2018, and QVC retains exclusive
rights with respect to C Wonder branded products for interactive television, excluding certain permitted international entities,
through May 1, 2018.

4.

Debt

The Company’s net carrying amount
of debt was comprised of the following:

($ in thousands)

September 30, 2017

December 31, 2016

Xcel Term Loan

$

19,500

$

25,250

Unamortized deferred finance costs related to term loan

(387

)

(509

)

IM Seller Note

2,201

3,627

Ripka Seller Notes

532

504

Contingent obligation - JR Seller

200

200

Contingent obligation - CW Seller

2,850

2,850

Total

24,896

31,922

Current portion (i)

4,559

6,427

Long-term debt

$

20,337

$

25,495

(i)

The current portion of long-term debt as of September 30, 2017 consists of (a) $3.0 million related
to the Xcel Term Loan, (b) $1.46 million related to the IM Seller Note, and (c) $100,000 related to the Ripka Earn-Out.

8

XCEL
BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited
Condensed Consolidated Financial Statements

September 30,
2017

(Unaudited)

Xcel Term Loan

On February 26, 2016, Xcel and its wholly
owned subsidiaries, IM Brands, LLC, JR Licensing, LLC, H Licensing, LLC, C Wonder Licensing, LLC, Xcel Design Group, LLC, IMNY
Retail Management, LLC, and IMNY E-Store, USA, LLC (each a “Guarantor” and collectively, the “Guarantors”),
as Guarantors, entered into an Amended and Restated Loan and Security Agreement (the “Loan Agreement”) with Bank Hapoalim
B.M. (“BHI”), as agent (the “Agent”), and the financial institutions party thereto as lenders (the “Lenders”).
The Loan Agreement amended and restated the IM Term Loan, the JR Term Loan, and the H Term Loan. Pursuant to the Loan Agreement,
Xcel assumed the obligations of each of IM Brands, LLC, JR Licensing, LLC, and H Licensing, LLC under the respective term loans
with BHI in the aggregate principal amount of $27,875,000 (the loan under the Loan Agreement is referred to as the “Xcel
Term Loan”). Management assessed and determined that this amendment represented a debt modification and, accordingly, no
gain or loss was recorded.

On February 24, 2017, Xcel and BHI amended
the terms of the Loan Agreement (the “Amended Loan Agreement”). Under this amendment, principal payments for the year
ending December 31, 2017 were increased by a total of $1,000,000, principal payments for the year ending December 31, 2021 were
decreased by $1,000,000, and the minimum EBITDA (as defined in the Amended Loan Agreement) requirement for the year ended December
31, 2016 was eliminated. There were no changes to the total principal balance, interest rate, maturity date, or other terms of
the Loan Agreement. Management assessed and determined that this amendment represented a debt modification and, accordingly, no
gain or loss was recorded.

On June 15, 2017, Xcel and BHI entered
into a second amendment to the Amended Loan Agreement. Under this amendment, principal payments for the year ending December 31,
2017 were increased by a total of $750,000, principal payments for the year ending December 31, 2021 were decreased by $750,000,
the minimum EBITDA (as defined in the Second Amendment to the Amended Loan Agreement) requirement for the year ending December
31, 2017 was changed from $9,000,000 to $7,000,000, and the minimum EBITDA requirements for the years ending December 31, 2018
and 2019 were changed from $9,000,000 to $8,000,000. There were no changes to the total principal balance, interest rate, maturity
date, or other terms of the Loan Agreement. Management assessed and determined that this amendment represented a debt modification
and, accordingly, no gain or loss was recorded. The current effective interest rate on the Amended Loan Agreement is equal to approximately
6.05%.

The Xcel Term Loan matures on January 1,
2021. Principal on the Xcel Term Loan is payable in quarterly installments on each of January 1, April 1, July 1 and October 1.
As of September 30, 2017, the aggregate remaining scheduled annual principal payments under the Second Amendment to the Loan Agreement
were as follows:

($
in thousands)

Year
Ending December 31,

Amount of
Principal
Payment

2017 (October 1 through December 31)

$

-

2018

4,000

2019

4,000

2020

4,000

2021

7,500

Total

$

19,500

Commencing with the fiscal
year ending December 31, 2017, the Company is required to repay a portion of the Xcel Term Loan in an amount equal to 10% of
the excess cash flow for the fiscal year; provided that no early termination fee shall be payable with respect to any
such payment (the “Excess Cash Flow Principal Payment”). Excess cash flow means, for any period, cash flow
from operations (before certain permitted distributions) less (i) capital expenditures not made through the incurrence
of indebtedness, (ii) all cash interest and principal and taxes paid or payable during such period, and (iii) all
dividends declared and paid during such period to equity holders of any credit party treated as a disregarded entity for tax
purposes. As of September 30, 2017, the estimated Excess Cash Flow Principal Payment provision of the Xcel Term Loan is not
expected to result in any additional repayment during the year ending December 31, 2017.

9

XCEL BRANDS, INC.
AND SUBSIDIARIES

Notes to Unaudited
Condensed Consolidated Financial Statements

September 30,
2017

(Unaudited)

Under the Amendment to the Loan Agreement,
the Company has the right to prepay the Xcel Term Loan, provided that any prepayment of less than all of the outstanding balance
shall be applied to the remaining amounts due in inverse order of maturity. If the Xcel Term Loan is prepaid on or prior to the
third anniversary of the closing date (including as a result of an event of default), the Company shall pay an early termination
fee equal to the principal amount outstanding under the Xcel Term Loan on the date of prepayment, multiplied by: (i) two percent
(2.00%) if the Xcel Term Loan is prepaid on or after the closing date and on or before the second anniversary of the closing date;
or (ii) one percent (1.00%) if the Xcel Term Loan is prepaid after the second anniversary of the closing date and on or before
the third anniversary of the closing date.

Xcel’s obligations under the Amended
Loan Agreement are guaranteed by the Guarantors and secured by all of the assets of Xcel and the Guarantors (as well as any subsidiary
formed or acquired that becomes a credit party to the Amended Loan Agreement) and, subject to certain limitations contained in
the Amended Loan Agreement, equity interests of the Guarantors (as well as any subsidiary formed or acquired that becomes a credit
party to the Amended Loan Agreement).

The Amended Loan Agreement contains customary
covenants, including reporting requirements, trademark preservation, and the following financial covenants of the Company (on a
consolidated basis with the Guarantors and any subsidiaries subsequently formed or acquired that become a credit party under the
Amended Loan Agreement):

·

net worth (as defined in the Amended Loan Agreement) of at least $90,000,000 at the end of each
fiscal quarter ending on June 30 and December 31 of each fiscal year;

·

liquid assets of at least $5,000,000, until such time as the ratio of indebtedness to EBITDA (as
defined in the Amended Loan Agreement) is less than 1.00 to 1.00 and, in which event, liquid assets must be at least $3,000,000;

·

a fixed charge ratio of at least 1.20 to 1.00 for each fiscal quarter ended June 30 and December
31 for the twelve fiscal month period ending on such date;

·

capital expenditures shall not exceed (i) $2,650,000 for the year ended December 31, 2016 and (ii)
$700,000 for any fiscal year thereafter; and

·

EBITDA (as defined in the Amended Loan Agreement) of not less than $7,000,000 for the fiscal year
ending December 31, 2017, not less than $8,000,000 for the fiscal years ending December 31, 2018 and 2019, and not less of $9,000,000
for the following fiscal years.

The Company was in compliance with all
applicable covenants as of September 30, 2017.

Interest on the Xcel Term Loan accrues
at a fixed rate of 5.1% per annum and is payable on each day on which the scheduled principal payments are required to be made.
For the Current Quarter and Prior Year Quarter, the Company incurred interest expense on its senior term loan debt with BHI of
approximately $257,000 and $340,000, respectively. For the Current Nine Months and Prior Year Nine Months, the Company incurred
interest expense on its senior term loan debt with BHI of approximately $852,000 and $1,003,000, respectively.

IM Seller Note

On September 29, 2011, as part of the consideration
for the purchase of the Isaac Mizrahi Business, the Company issued to IM Ready-Made, LLC (“IM Ready”) a promissory
note in the principal amount of $7,377,000 (as amended, the “IM Seller Note”). The stated interest rate of the IM Seller
Note was 0.25% per annum. Management determined that this rate was below the Company’s expected borrowing rate, which was
then estimated at 9.25% per annum. Therefore, the Company discounted the IM Seller Note by $1,740,000 using a 9.0% imputed annual
interest rate, resulting in an initial value of $5,637,000. In addition, on September 29, 2011, the Company prepaid $123,000 of
interest on the IM Seller Note. The imputed interest amount was amortized over the term of the IM Seller Note and recorded as other
interest and finance expense on the Company’s condensed consolidated statements of operations.

10

XCEL BRANDS, INC.
AND SUBSIDIARIES

Notes to Unaudited
Condensed Consolidated Financial Statements

September 30,
2017

(Unaudited)

On December 24, 2013, the IM Seller Note
was amended to (1) revise the maturity date to September 30, 2016, (2) revise the date to which the maturity date may be extended
to September 30, 2018, (3) provide the Company with a prepayment right with its common stock, subject to remitting in cash certain
required cash payments and a minimum common stock price of $4.50 per share, and (4) require interim scheduled payments.

On September 19, 2016, the IM Seller Note
was further amended and restated to (1) revise the maturity date to March 31, 2019, (2) require six semi-annual principal and interest
installment payments of $750,000, commencing on September 30, 2016 and ending on March 31, 2019, (3) revise the stated interest
rate to 2.236% per annum, (4) allow for optional prepayments at any time at the Company’s discretion without premium or penalty,
and (5) require that all payments of principal and interest be made in cash. Management assessed and determined that this amendment
represented a debt modification and, accordingly, no gain or loss was recorded.

As of September 30, 2017, the aggregate
remaining annual principal payments under the IM Seller Note were as follows:

($
in thousands)

Year
Ending December 31,

Amount
of

Principal

Payment

2017 (October 1 through December 31)

$

-

2018

1,459

2019

742

Total

$

2,201

For the Current Quarter, the Company incurred
interest expense of approximately $16,000 under the IM Seller Note. For the Prior Year Quarter, the Company incurred interest expense
of approximately $70,000, which consisted solely of amortization of the discount on the IM Seller Note. For the Current Nine Months,
the Company incurred interest expense of approximately $53,000 under the IM Seller Note. For the Prior Year Nine Months, the Company
incurred interest expense of approximately $210,000 under the IM Seller Note, which consisted solely of amortization of the discount
on the IM Seller Note.

Ripka Seller Notes

As of September 30, 2017, the remaining
discounted balance, non-interest bearing note relating to the acquisition of the Ripka Brand (the “Ripka Seller Notes”)
was approximately $532,000. An aggregate $600,000 principal amount of the Ripka Seller Notes is due at maturity (March 31, 2019).

For the Current Quarter and Prior Year
Quarter, the Company incurred interest expense of approximately $10,000 and $9,000, respectively, under the Ripka Seller Notes,
which consisted solely of amortization of the discount on the Ripka Seller Notes. For the Current Nine Months and the Prior Year
Nine Months, the Company incurred interest expense of approximately $28,000 and $26,000, respectively, under the Ripka Seller Notes,
which consists solely of amortization of the discount on the Ripka Seller Notes.

Contingent Obligation – JR Seller (Ripka Earn-Out)

In connection with the purchase of the
Ripka Brand, the Company agreed to pay the sellers of the Ripka Brand additional consideration of up to $5 million in aggregate
(the “Ripka Earn-Out”), payable in cash or shares of the Company’s common stock based on the fair market value
of the Company’s common stock at the time of payment, and with a floor of $7.00 per share, based on the Ripka Brand achieving
in excess of $1 million of net royalty income during each of the 12-month periods ending on October 1, 2016, 2017 and 2018, less
the sum of all earn-out payments for any prior earn-out period. Net royalty income does not include any revenues generated by interactive
television sales or any revenue accelerated as a result of a termination of any license agreement. The Ripka Earn-Out of $3.78
million was recorded based on the difference between the fair value of the acquired assets of the Ripka Brand at the acquisition
date and the total consideration paid.

11

XCEL BRANDS, INC.
AND SUBSIDIARIES

Notes to Unaudited
Condensed Consolidated Financial Statements

September 30,
2017

(Unaudited)

On December 21, 2016, the Company
entered into an agreement with the sellers of the Ripka Brand which amended the terms of the Ripka Earn-Out, such that the
maximum amount of earn-out consideration was reduced to $375,000, of which $175,000 was payable in cash upon execution of the
amendment, and $100,000 is payable in cash on each of May 15, 2018 and 2019. The payment of the remaining future payments of
$200,000 under the earn-out is contingent upon the Ripka Brand achieving at least $6,000,000 of net royalty income from QVC
during each of the 12-month periods ending on March 31, 2018 and 2019. The remaining expected value (which approximates fair
value) of the Ripka Earn-Out of $0.20 million is recorded as long-term debt in the accompanying condensed consolidated
balance sheets as of September 30, 2017, of which $0.10 million is presented in the current portion of long-term debt. As of
December 31, 2016, the expected value of the Ripka Earn-Out was $0.20 million, recorded as long-term debt.

Contingent Obligations – CW
Seller (C Wonder Earn-Out)

In connection with the purchase of the
C Wonder Brand, the Company agreed to pay the seller additional consideration (the “C Wonder Earn-Out”), which would
be payable, if at all, in cash or shares of common stock of the Company, at the Company’s sole discretion, after June 30,
2019, with a value based on the royalties related directly to the assets the Company acquired pursuant to the purchase agreement.
The value of the earn-out shall be calculated as the positive amount, if any, of (i) two times (A) the maximum net royalties as
calculated for any single twelve month period commencing on July 1 and ending on June 30 between the closing date and June 30,
2019 (each, a “Royalty Target Year”) less (B) $4,000,000, plus (ii) two times the maximum royalty determined based
on a percentage of retail and wholesale sales of C Wonder branded products by the Company as calculated for any single Royalty
Target Year. The C Wonder Earn-Out of $2.85 million is recorded in the accompanying condensed consolidated balance sheets based
on the probability of the C Wonder Brand achieving certain net royalty income targets within the earn-out periods and then calculating
the present value of the weighted average payment amount. In accordance with Accounting Standards Codification Topic 480, the C
Wonder Earn-Out obligation is classified as a liability in the accompanying condensed consolidated balance sheets because of the
variable number of shares payable under the agreement.

As of September 30, 2017 and December 31,
2016, total contingent obligations were $3.05 million.

5.

Stockholders’ Equity

2011 Equity Incentive Plan

The Company’s 2011 Equity Incentive
Plan, as amended and restated (the “Plan”), is designed and utilized to enable the Company to provide its employees,
officers, directors, consultants, and others whose past, present, and/or potential contributions to the Company have been, are,
or will be important to the success of the Company, an opportunity to acquire a proprietary interest in the Company. A total of
13,000,000 shares of common stock are eligible for issuance under the Plan. The Plan provides for the grant of any or all of the
following types of awards: stock options, restricted stock, deferred stock, stock appreciation rights, and other stock-based awards.
The Plan is administered by the Company’s Board of Directors, or, at the Board’s discretion, a committee of the Board.

The fair value of options and warrants
is estimated on the date of grant using the Black-Scholes option pricing model. The valuation determined by the Black-Scholes option
pricing model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective
variables. These variables include, but are not limited to, expected stock price volatility over the term of the awards, and actual
and projected employee stock option exercise behaviors. The risk-free rate is based on the U.S. Treasury rate for the expected
life at the time of grant, volatility is based on the average long-term implied volatilities of peer companies, and expected life
is based on the estimated average of the life of options and warrants using the simplified method. The Company utilizes the simplified
method to determine the expected life of the options and warrants due to insufficient exercise activity during recent years as
a basis from which to estimate future exercise patterns. The expected dividend assumption is based on the Company’s history
and expectation of dividend payouts.

Restricted stock awards are valued using
the fair value of the Company’s stock at the date of grant.

For stock option awards for which vesting
is contingent upon the achievement of certain performance targets, the timing and amount of compensation expense recognized is
based upon the Company’s projections and estimates of the relevant performance metric(s).

Forfeitures are accounted for as a reduction
of compensation cost in the period when such forfeitures occur.

12

XCEL BRANDS, INC.
AND SUBSIDIARIES

Notes to Unaudited
Condensed Consolidated Financial Statements

September 30,
2017

(Unaudited)

Stock Options

Options granted under the Plan expire at
various times – either five, seven, or ten years from the date of grant, depending on the particular grant.

On January 1, 2017, the Company granted
options to purchase an aggregate of 150,000 shares of common stock to a certain key employee. The exercise price of the options
is $5.50 per share, and one-third of the options will vest on each of January 1, 2018, January 1, 2019, and January 1, 2020.

On January 24, 2017, the Company granted
options to purchase an aggregate of 500,000 shares of common stock to a certain executive. The exercise price of the options is
$5.00 per share, and one-fifth of the options will vest on each of January 1, 2018, January 1, 2019, January 1, 2020, January 1,
2021, and January 1, 2022.

On March 31, 2017, the Company granted
options to purchase an aggregate of 150,000 shares of common stock to non-management directors. The exercise price of the options
is $2.70 per share, and 50% of the options will vest on each of April 1, 2018 and March 31, 2019.

On May 31, 2017, the Company granted options
to purchase an aggregate of 15,000 shares of common stock to a certain key employee. The exercise price of the options is $2.60
per share, and one-third of the options will vest on each of May 31, 2018, May 31, 2019, and May 31, 2020.

On August 30, 2017, the Company granted
options to purchase an aggregate of 20,000 shares of common stock to a certain key employee. The exercise price of the options
is $3.55 per share, and one-half of the options will vest on each of August 30, 2018, and August 30, 2019.

The fair values of the options granted
during the Current Nine Months were estimated at the date of grant using the Black-Scholes option pricing model with the following
assumptions:

Expected Volatility

33.69 – 35.20

%

Expected Dividend Yield

0

%

Expected Life (Term)

3.25 – 5.42

years

Risk-Free Interest Rate

1.48 – 2.02

%

A summary of the Company’s stock options activity for
the Current Nine Months is as follows:

Number of Options

Weighted Average Exercise Price

Weighted Average Remaining Contractual Life (in Years)

Aggregate Intrinsic Value

Outstanding at January 1, 2017

2,436,000

$

5.98

4.38

$

-

Granted

835,000

4.60

Canceled

-

-

Exercised

-

-

Expired/Forfeited

(135,666

)

5.03

Outstanding at September 30, 2017, and expected to vest

3,135,334

$

5.66

4.31

$

-

Exercisable at September 30, 2017

785,503

$

6.22

3.38

$

-

Compensation expense related to stock options
for the Current Quarter and the Prior Year Quarter was approximately $313,000 and $296,000, respectively. Compensation expense
related to stock options for the Current Nine Months and the Prior Year Nine Months was approximately $887,000 and $644,000, respectively.
Total unrecognized compensation expense related to unvested stock options at September 30, 2017 amounts to approximately $2,210,000
and is expected to be recognized over a weighted average period of 2.30 years.

13

XCEL BRANDS, INC.
AND SUBSIDIARIES

Notes to Unaudited
Condensed Consolidated Financial Statements

September 30,
2017

(Unaudited)

The following table summarizes the Company’s
stock option activity for non-vested options for the Current Nine Months:

Number of Options

Weighted Average Grant Date Fair Value

Balance at January 1, 2017

2,294,667

$

1.39

Granted

835,000

1.08

Vested

(682,837

)

1.49

Forfeited or Canceled

(96,999

)

1.40

Balance at September 30, 2017

2,349,831

$

1.32

Warrants

Warrants granted under the Plan expire
at various times – either five, seven, or ten years from the date of grant, depending on the particular grant.

A summary of the Company’s warrants
activity for the Current Nine Months is as follows:

Number of Warrants

Weighted Average Exercise Price

Weighted Average Remaining Contractual Life (in Years)

Aggregate Intrinsic Value

Outstanding and exercisable at January 1, 2017

1,966,743

$

6.76

2.81

$

-

Granted

-

-

Canceled

-

-

Exercised

-

-

Expired/Forfeited

(75,000

)

(5.50

)

Outstanding and exercisable at September 30, 2017

1,891,743

$

6.81

2.17

$

-

No compensation expense related to warrants
was recognized in the Current Nine Months or Prior Year Nine Months.

Restricted Stock

On January 31, 2017, the Company issued
50,000 shares of restricted stock to a consulting firm whose controlling shareholder is a director of the Company. Of the 50,000
shares of restricted stock granted, 25,000 shares vested immediately and 25,000 shares shall vest on January 31, 2018. On June
18, 2017, the Company issued an additional 28,334 shares of restricted stock to the same consulting firm, of which 14,167 shares
vested immediately on the same day and 14,167 shares shall vest on January 31, 2018. See Note 8, Related Party Transactions, for
additional information.

On March 31, 2017, the Company issued to
non-management directors an aggregate of 48,000 shares of restricted stock. The shares of restricted stock will vest evenly over
two years, whereby 50% shall vest on March 31, 2018 and 50% shall vest on March 31, 2019.

14

XCEL BRANDS, INC.
AND SUBSIDIARIES

Notes to Unaudited
Condensed Consolidated Financial Statements

September 30,
2017

(Unaudited)

Notwithstanding the foregoing, each executive
and director grantee may extend the first anniversary of all or a portion of the restricted stock by six months and, thereafter
one or more times may further extend such date with respect to all or a portion of the restricted stock until the next following
date six months or twelve months hence, by providing written notice of such election to extend such date with respect to all or
a portion of the restricted stock prior to such date.

A summary of the Company’s restricted
stock activity for the Current Nine Months is as follows:

Number of Restricted Shares

Weighted Average Grant Date Fair Value

Outstanding at January 1, 2017

3,171,685

$

5.12

Granted

126,334

3.18

Canceled

-

-

Vested

(831,931

)

4.28

Expired/Forfeited

(1,000

)

9.00

Outstanding at September 30, 2017

2,465,088

$

5.30

Compensation expense related to restricted
stock for the Current Quarter and Prior Year Quarter was approximately $377,000 and $793,000, respectively. Compensation
expense related to restricted stock for the Current Nine Months and Prior Year Nine Months was approximately $1,609,000
and $3,110,000, respectively. Total unrecognized compensation expense related to unvested restricted stock grants at September
30, 2017 amounts to approximately $964,000 and is expected to be recognized over a weighted average period of 1.46 years.

Shares Available Under the Company’s
2011 Equity Incentive Plan

At September 30, 2017, there were 5,604,688
shares of common stock available for issuance under the Plan.

Shares Reserved for Issuance

At September 30, 2017, there were 10,631,765
shares of common stock reserved for issuance pursuant to unexercised warrants and stock options, or available for issuance under
the Plan.

Dividends

The Company has not paid any dividends
to date.

6.

Earnings Per Share

Basic earnings per share (“EPS”)
is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding
during the period. Diluted EPS gives effect to all potentially dilutive common shares outstanding during the period, including
stock options and warrants, using the treasury stock method. Diluted EPS excludes all potentially dilutive shares of common stock
if their effect is anti-dilutive.

15

XCEL BRANDS, INC.
AND SUBSIDIARIES

Notes to Unaudited
Condensed Consolidated Financial Statements

September 30,
2017

(Unaudited)

Three Months Ended

September 30,

Nine Months Ended

September 30,

2017

2016

2017

2016

Basic

18,470,977

18,692,775

18,530,963

18,608,034

Effect of exercise of warrants

364,340

369,288

364,247

-

Effect of exercise of stock options

37,436

5,948

1,208

-

Diluted

18,872,753

19,068,011

18,896,418

18,608,034

As a result of the net loss presented for
the Prior Year Nine Months, the Company calculated diluted earnings per share using basic weighted-average shares outstanding for
that period, as utilizing diluted shares would be anti-dilutive to loss per share.

The computation of diluted EPS excludes
the common stock equivalents of the following potentially dilutive securities because their inclusion would be anti-dilutive:

Three Months Ended

September 30,

Nine Months Ended

September 30,

2017

2016

2017

2016

Stock options and warrants

4,465,584

3,338,000

4,485,584

4,743,743

7.

Income Tax

The effective income tax rate for the Current
Quarter and the Prior Year Quarter was approximately 73% and 68%, respectively, resulting in an income tax provision of $691,000
and $256,000, respectively.

The effective income tax rate for the Current
Nine Months and the Prior Year Nine Months was approximately 96% and 15%, respectively, resulting in an income tax provision (benefit)
of $1,704,000 and $(3,000), respectively.

In the Current Quarter and Current Nine
Months, the effective tax rate was primarily attributable to recurring permanent differences. Based on the amount of income before
income taxes compared to the recurring permanent differences, the effective rate increased by approximately 34% for
the Current Quarter and by approximately 33% for the Current Nine Months. The effective tax rate was also impacted by the tax impact
from the vesting of restricted shares of common stock. The excess tax deficiencies were treated as a discrete item for tax as required
by ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. This item increased the effective rate by 5% for
the Current Quarter and 30% for the Current Nine Months, respectively.

During the Prior Year Quarter and the Prior
Year Nine Months, the respective effective tax rates were attributable to recurring permanent differences. Based on the amount
of income/(loss) before income taxes compared to the permanent differences, the effective rate increased by 27% and decreased by
26% for the Prior Year Quarter and the Prior Year Nine Months, respectively.

8.

Related Party Transactions

Benjamin Malka

Concurrent with the acquisition of the
H Halston Brand on December 22, 2014, the Company and The H Company IP, LLC (“HIP”) entered into a license agreement
(the “HIP License Agreement”), which was subsequently amended September 1, 2015. Benjamin Malka, a director of the
Company, is a 25% equity holder of HIP’s parent company, House of Halston LLC (“HOH”), and Chief Executive Officer
of HOH. The HIP license agreement provides for royalty payments including guaranteed minimum royalties to be paid to the Company
during the initial term that expires on December 31, 2019.

On September 1, 2015, the Company entered
into a license agreement with Lord and Taylor, LLC (the “L&T License”) and simultaneously amended the HIP License
Agreement eliminating HIP’s minimum guaranteed royalty obligations, provided the L&T License is in effect. In addition,
the Company entered into a sublicense agreement with HIP (the “HIP Sublicense Agreement”), obligating the Company to
pay HIP a fee on an annual basis the greater of (i) 50% of royalties received under the L&T License from H Halston products
or (ii) guaranteed minimum royalties. Provided that Lord & Taylor, LLC is paying the Company at least $1,000,000 per quarter
under the L&T License, the remaining contractually required guaranteed minimum royalties are equal to $0.75 million, $0.75
million, $1.5 million, and $1.75 million for the twelve months ending January 31, 2018, 2019, 2020, and 2021, respectively.

16

XCEL BRANDS, INC.
AND SUBSIDIARIES

Notes to Unaudited
Condensed Consolidated Financial Statements

September 30,
2017

(Unaudited)

Cumulative fees paid to HIP by the Company
or on the Company’s behalf through September 30, 2017 were $0.19 million.

The Company recorded $0 and $28,000 of
HIP fees (as a reduction to net revenue) for the Current Quarter and the Prior Year Quarter, respectively. The Company recorded
approximately $9,000 and $91,000 of HIP fees (as a reduction to net revenue) for the Current Nine Months and the Prior Year Nine
Months, respectively. In September 2017, the Company had a prepaid balance of $0.2 million to HIP to be applied against future
fees due to HIP, which is recorded as a prepaid in current assets as of September 30, 2017.

HOH has also entered into an arrangement
with another licensee of the Company to supply Halston-branded apparel for the subsequent sale of such product to end customers.
Under the Company’s separate pre-existing licensing agreements in place with the aforementioned other licensee and with HIP
as described above, the Company earns royalties on the sales of such Halston-branded products.

Edward Jones, III

During the Current Nine Months and Prior
Year Nine Months, Edward Jones, III, a director of the Company, performed consulting services for and received compensation from
a certain licensee of the Company. Under the terms of the Company’s agreement with this certain licensee, the licensee may
supply the Company’s branded products to the Company’s other licensees. Under the terms of the Company’s separate
pre-existing agreements with other licensees, the Company would earn royalties on the sales of such branded products sold to end
customers.

On January 31, 2017, the Company entered
into a two-year consulting agreement (the “JTI Consulting Agreement”) with Jones Texas, Inc. (“JTI”), whose
controlling shareholder is Edward Jones, III, a director of the Company, pursuant to which JTI shall cause Mr. Jones to provide
consulting services in connection with the Company’s fast-to-market production platform fashion program and other projects. Pursuant
to the JTI Consulting Agreement, the Company issued an aggregate of 50,000 shares of common stock to JTI, of which 25,000 shares
vested immediately, and 25,000 shares shall vest on January 31, 2018; however, up to 25,000 shares of common stock are subject
to forfeiture if the Company’s business with suppliers of women’s apparel is materially diminished, as defined in the
JTI Consulting Agreement. On June 18, 2017, based upon meeting certain performance targets relating to the Company’s fast-to-market
production platform business as provided in the January 31, 2017 JTI Consulting Agreement, the Company issued an additional 28,334
shares of common stock to JTI, of which 14,167 shares vested immediately, resulting in the recognition of compensation expense
of $79,000, and the remaining 14,167 shares shall vest on January 31, 2018. The Company also paid JTI a cash consulting fee of
$75,000 on January 30, 2017 and an additional cash consulting fee of $75,000 on April 28, 2017 relating to other projects. As of
September 30, 2017, there was no additional compensation owed to JTI.

9.

Facility Exit Costs

In June 2016, the Company relocated its
corporate offices and operations from 475 Tenth Avenue in New York City to 1333 Broadway in New York City. In connection with the
exit from its former office location, the Company recognized a liability at the exit and cease-use date for the remaining lease
obligation associated with 475 Tenth Avenue, based on the remaining contractual lease payments less estimated sublease rentals,
discounted to present value using a credit-adjusted risk-free rate. The Company recorded a net non-cash charge of approximately
$648,000 associated with the recognition of this liability in the second quarter of 2016.

The remaining balance of the exit cost
liability related to the former office space was approximately $633,000 as of September 30, 2017, of which $92,000 was recorded
in other current liabilities and $541,000 was recorded in other long-term liabilities in the accompanying unaudited condensed consolidated
balance sheets. The balance of this liability will be paid out over a period of approximately 4.5 years, through February 2022.

17

XCEL BRANDS, INC.
AND SUBSIDIARIES

Notes to Unaudited
Condensed Consolidated Financial Statements

September 30,
2017

(Unaudited)

A summary of the activity related to the
exit cost liability for the Current Nine Months is as follows:

($ in thousands)

Balance as of January 1, 2017

$

783

Cash payments, net

(140

)

Adjustment to liability (revision to estimated cash flows)

(25

)

Accretion

15

Balance as of September 30, 2017

$

633

10.

Subsequent Events

On October 23, 2017, the Company further amended its Amended and Restated Certificate of Incorporation to increase
the number of shares of common stock which the Company has authority to increase from 35,000,000 to 50,000,000 and, consequently,
to increase the total number of shares of all classes of capital stock which the Company has authority to increase from 36,000,000
to 51,00,000.

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Safe Harbor Statement under the Private
Securities Litigation Reform Act of 1995. The statements that are not historical facts contained in this report are forward-looking
statements that involve a number of known and unknown risks, uncertainties and other factors, all of which are difficult or impossible
to predict and many of which are beyond our control, which may cause our actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or implied by such forward-looking statements. These risks
are detailed in the Risk Section of our Form 10-K for the fiscal year ended December 31, 2016. The words “believe,”
“anticipate,” “expect,” “continue,” “estimate,” “appear,” “suggest,”
“goal,” “potential,” “predicts,” “seek,” “will,” “confident,”
“project,” “provide,” “plan,” “likely,” “future,” “ongoing,”
“intend,” “may,” “should,” “would,” “could,” “guidance,”
and similar expressions identify forward-looking statements.

Overview

Xcel Brands, Inc. (“Xcel,”
the “Company,” “we,” “us,” or “our”) is a media and consumer products company engaged
in the design, production, licensing, marketing, and direct to consumer sales of branded apparel, footwear, accessories, jewelry,
home goods, and other consumer products, and the acquisition of dynamic consumer lifestyle brands. Currently, our brand portfolio
consists of the Isaac Mizrahi, Judith Ripka, H Halston, C Wonder, and Highline Collective brands. We also managed and designed
the Liz Claiborne New York brand (“LCNY brand”) through July 31, 2016.

Our objective is to build a diversified
portfolio of lifestyle consumer brands through organic growth and the strategic acquisition of new brands. To achieve growth under
our brands, we are focused on two primary licensing and design activities:

·

licensing our brands for distribution through interactive television (i.e. QVC, The Shopping Channel);
and

·

licensing our brands to manufacturers and retailers for promotion and distribution through e-commerce,
social commerce, and traditional brick-and-mortar retail channels (wholesale and department store business). Our wholesale and
department store business includes our fast-to-market production platform, which is our proprietary production oversight solution for
our retail partners.

We believe that Xcel offers a unique value
proposition to its licensees and customers for the following reasons:

·

our management team, including our officers’ and directors’ historical track records
and relationships within the industry;

18

·

our brand management platform, which has a strong focus on design, production oversight, marketing,
and social media;

We license our brands to third parties,
provide certain design, production, and marketing services, and generate licensing, design, and service fee revenues through contractual
arrangements with manufacturers and retailers. This includes licensing our own brands for promotion and distribution through a
ubiquitous-channel retail sales strategy, which includes distribution through interactive television, the internet, and traditional
brick-and-mortar retail channels. We believe that this strategy distinguishes us from other brand management companies that rely
primarily on their licensees for design, production, and distribution, and enables us to leverage the media reach of our interactive
television partners, including through television, digital, and social media, to drive sales of products under our brands across
distribution channels.

Our vision is intended to reimagine shopping,
entertainment, and social as one. By leveraging digital and social media content across all distribution channels, we seek to drive
customer (follower) engagement and generate retail sales across our brands. Our strong relationships with leading retailers and
interactive television companies enable us to reach consumers in over 360 million homes worldwide.

We believe our “virtual vertical”
production platform provides significant competitive advantages compared with traditional wholesale apparel companies that design,
manufacture, and distribute products. We remain focused on our core competencies of licensing, production, design, marketing, and
brand development, while outsourcing manufacturing and the related inventory ownership to best-in-class partners. We believe that
we offer 360 degrees of service for a comprehensive solution for our retail partners that addresses many of the challenges facing
the retail industry today. We believe our platform is highly scalable due to our business model’s low overhead and working
capital requirements, coupled with minimum guaranteed income levels through our multi-year licensing contracts. Additionally, we
believe we can quickly integrate additional brands into our platform leveraging our design, production oversight, and marketing
capabilities and retail and licensee relationships.

Summary of Operating Results

The three months ended September
30, 2017 (the “Current Quarter”) compared with the three months ended September 30, 2016 (the “Prior Year Quarter”)

Net Revenues

Current Quarter net
revenues decreased approximately $0.43 million to $7.89 million from $8.32 million in the Prior Year Quarter. This decrease
was primarily attributable to the combination of (i) lower revenues from our interactive television agreements of
approximately $0.36 million primarily driven by the termination and transition of the C Wonder Brand from QVC, (ii) lower
revenues of approximately $0.19 million associated with the management and design of the LCNY brand (for which our contract
ended in July 2016) and (iii) lower revenues of approximately $0.17 million from wholesale net revenues associated with our jewelry business. These
decreases were offset by higher net revenues from our wholesale department store business of approximately $0.29 million,
primarily driven by an increase in the number of retail stores our brands are sold in, including the launch at
Dillard’s this year, and expanding into more product categories for our fast-to-market production platform in our
department store business.

Operating Costs and Expenses

Operating costs and expenses decreased
$0.85 million to $6.63 million for the Current Quarter from $7.48 million in the Prior Year Quarter. This decrease was primarily
attributable to (i) a decrease in other design and marketing costs of approximately $0.49 million primarily attributable to start-up
expenses in the Prior Year Quarter for our fast-to-market production platform in our department store business, and (ii) a net decrease
in total compensation, including stock-based compensation, of approximately $0.37 million, as the Company shifted from awards
of restricted stock to stock options.

Interest and Finance Expense

Interest and finance expense for the Current
Quarter decreased by approximately $0.15 million to $0.31 million, compared with $0.46 million in the Prior Year Quarter. This
decrease was attributable to: (i) lower interest expense of $0.08 million on our term debt due to a lower principal balance, and
(ii) lower interest recognized on the IM Seller Note of $0.07 million (attributable to a reduced imputed rate from 9.0% in the
Prior Year Quarter to an interest rate of 2.2%) resulting from the amendment of the IM Seller Note in September 2016.

19

Income Tax Provision (Benefit)

The effective income tax rate for the Current
Quarter was approximately 73% resulting in a $0.69 million income tax provision. During the Current Quarter, the effective tax
rate was primarily attributable to recurring permanent differences. Based on the amount of income before income taxes compared
to the recurring permanent differences, the effective rate increased by approximately 34%. The effective tax rate was also attributable
to the tax impact from the vesting of restricted shares of common stock, which was treated as a discrete item for tax purposes.
This item increased the effective rate by 5%.

The effective income tax rate for the Prior
Year Quarter was approximately 68% which resulted in a $0.26 million income tax provision. During the Prior Year Quarter, the effective
tax rate was attributable to recurring permanent differences. Based on the amount of income before income taxes compared to the
permanent differences, the effective rate increased by 27%.

Net Income

We had net income of $0.25 million for
the Current Quarter, compared to net income of $0.12 million for the Prior Year Quarter.

Non-GAAP Net Income, Non-GAAP Diluted
EPS, and Adjusted EBITDA

We had non-GAAP net income of $1.64 million,
or $0.09 per diluted share (“non-GAAP diluted EPS”) for the Current Quarter, compared with non-GAAP net income of $1.54
million, or non-GAAP diluted EPS of $0.08 for the Prior Year Quarter. Non-GAAP net income is a non-GAAP unaudited term, which we
define as net income (loss), exclusive of stock-based compensation, non-cash interest expense from discounted debt related to acquired
assets, loss on extinguishment of debt, gain on the reduction of contingent obligations, non-recurring facility exit charges, certain
discrete tax items related to vesting or exercise of stock-based awards, and net income or loss from discontinued operations. Non-GAAP
net income and non-GAAP diluted EPS measures do not include the tax effect of the aforementioned adjusting items, due to the nature
of these items and the Company’s tax strategy.

We had Adjusted EBITDA of $2.36 million
for the Current Quarter, compared with Adjusted EBITDA of $2.34 million for the Prior Year Quarter. Adjusted EBITDA is a non-GAAP
unaudited measure, which we define as net income (loss) before stock-based compensation, interest expense and other financing costs,
loss on extinguishment of debt, gain on the reduction of contingent obligations, income taxes, other state and local franchise
taxes, depreciation and amortization, non-recurring facility exit charges, and net income or loss from discontinued operations.

Management uses non-GAAP net income, non-GAAP
diluted EPS, and Adjusted EBITDA as measures of operating performance to assist in comparing performance from period to period
on a consistent basis and to identify business trends relating to the Company's results of operations. Management believes non-GAAP
net income, non-GAAP diluted EPS, and Adjusted EBITDA are also useful because they provide supplemental information to assist investors
in evaluating the Company’s financial results.

Non-GAAP net income, non-GAAP diluted EPS,
and Adjusted EBITDA should not be considered in isolation or as alternatives to net income, earnings per share, or any other measure
of financial performance calculated and presented in accordance with GAAP. Given that non-GAAP net income, non-GAAP diluted EPS,
and Adjusted EBITDA are financial measures not deemed to be in accordance with GAAP and are susceptible to varying calculations,
our non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA may not be comparable to similarly titled measures of other
companies, including companies in our industry, because other companies may calculate non-GAAP net income, non-GAAP diluted EPS,
and Adjusted EBITDA in a different manner than we calculate these measures.

20

In evaluating non-GAAP net income, non-GAAP
diluted EPS, and Adjusted EBITDA, you should be aware that in the future we may or may not incur expenses similar to some of the
adjustments in this report. Our presentation of non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA does not imply that
our future results will be unaffected by these expenses or any unusual or non-recurring items. When evaluating our performance,
you should consider non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA alongside other financial performance measures,
including our net income (loss) and other GAAP results, and not rely on any single financial measure.

The following table is a reconciliation
of net income (our most directly comparable financial measure presented in accordance with GAAP) to non-GAAP net income:

Three Months Ended September 30,

($ in thousands)

2017

2016

Net income

$

252

$

118

Non-cash interest and finance expense

9

78

Stock-based compensation

690

1,089

Deferred income tax provision

691

256

Non-GAAP net income

$

1,642

$

1,541

The following table is a reconciliation
of diluted earnings per share (our most directly comparable financial measure presented in accordance with GAAP) to non-GAAP diluted
EPS:

Three Months Ended September 30,

2017

2016

Diluted earnings per share

$

0.01

$

0.01

Non-cash interest and finance expense

0.00

0.00

Stock-based compensation

0.04

0.06

Deferred income tax provision

0.04

0.01

Non-GAAP diluted EPS

$

0.09

$

0.08

Non-GAAP weighted average diluted shares

18,872,753

19,068,011

The following table is a reconciliation
of basic weighted average shares outstanding (presented in accordance with GAAP) to non-GAAP weighted average diluted shares:

Three Months Ended September 30,

2017

2016

Basic weighted average shares

18,470,977

18,692,775

Effect of exercising warrants

364,340

369,288

Effect of exercising stock options

37,436

5,948

Non-GAAP weighted average diluted shares

18,872,753

19,068,011

The following table is a reconciliation
of net income (our most directly comparable financial measure presented in accordance with GAAP) to Adjusted EBITDA:

Three Months Ended September 30,

($ in thousands)

2017

2016

Net income

$

252

$

118

Depreciation and amortization

389

387

Interest and finance expense

314

462

Income tax provision

691

256

State and local franchise taxes

25

26

Stock-based compensation

690

1,089

Adjusted EBITDA

$

2,361

$

2,338

21

The nine months ended September 30,
2017 (the “Current Nine Months”) compared with the nine months ended September 30, 2016 (the “Prior Year Nine
Months”)

Net Revenues

Current Nine Months net revenues decreased
approximately $1.10 million to $24.69 million from $25.79 million in the Prior Year Nine Months. This decrease was primarily due
to (i) lower revenues of approximately $1.23 million associated with the termination and transition of the C Wonder Brand from
QVC and (ii) lower revenues of approximately $1.10 million associated with the management and design of the LCNY brand (for which
our contract ended in July 2016). These decreases were partially offset by (i) higher net revenues from our ongoing interactive
television business of $0.85 and (ii) higher net revenues from our wholesale department store business of approximately $0.42
million. The increase in our wholesale department store business was primarily driven by an increase in the number of retail
stores our brands are sold in, including the launch at Dillard’s this year, and expanding into more product categories for
our fast-to-market production platform in our department store business.

Operating Costs and Expenses

Operating costs and expenses were $21.88
million for the Current Nine Months, compared with $24.39 million for the Prior Year Nine Months. The decrease of approximately
$2.51 million was primarily related to i) a decrease in other selling, general and administrative expenses of approximately $0.94
million, primarily driven by lower rent and rent-related expenses, which in the Prior Year Nine Months were also affected
by non-recurring charges incurred in connection with the exit from our former leased office facilities, (ii) a $0.93 million net
decrease in total compensation, including stock-based compensation, and (iii) a decrease in other design and marketing costs of
approximately $0.64 million primarily attributable to start-up expenses in the Prior Year Nine Months for our fast-to-market production
platform in our department store business.

Interest and Finance Expense

Interest and finance expense for the Current
Nine Months decreased by approximately $0.39 million to $1.04 million, compared with $1.43 million in the Prior Year Nine Months.
This decrease was attributable primarily to: (i) lower interest recognized on the IM Seller Note of $0.21 million (attributable
to a reduced imputed rate from 9.0% in the Prior Year Nine Months to an interest rate of 2.2%) resulting from the amendment of
the IM Seller Note in September 2016, (ii) lower interest expense of $0.15 million on our term debt due to a lower principal balance,
and (iii) lower loan modification fees of $0.05 million compared to the Prior Year Nine Months in connection with the amendments
to our term debt.

Income Tax Provision (Benefit)

The effective income tax rate for the Current
Nine Months was approximately 96% resulting in a $1.70 million income tax provision. During the Current Nine Months, the effective
tax rate was primarily attributable to recurring permanent differences. Based on the amount of income before income taxes compared
to the recurring permanent differences, the effective rate increased by approximately 33%. The effective tax rate was also attributable
to the tax impact from the vesting of restricted shares of common stock, which was treated as a discrete item for tax purposes.
This item increased the effective rate by 30%.

The effective income tax rate for the Prior
Year Nine Months was approximately 15% resulting in a $0.003 million income tax benefit. During the Prior Year Nine Months, the
effective tax rate was attributable to recurring permanent differences. Based on the amount of loss before income taxes compared
to the permanent differences, the effective rate decreased by 26%.

Net Income (Loss)

The Company had net income of $0.07 million
for the Current Nine Months, compared with net loss of $0.02 million for the Prior Year Nine Months.

22

Non-GAAP Net Income, Non-GAAP Diluted
EPS, and Adjusted EBITDA

We had non-GAAP net income of $4.29 million,
or $0.22 per diluted share for the Current Nine Months, compared with non-GAAP net income of $4.64 million, or non-GAAP diluted
EPS of $0.24 for the Prior Year Nine Months. We had Adjusted EBITDA of $6.56 million for the Current Nine Months, compared with
Adjusted EBITDA of $7.08 million for the Prior Year Nine Months.

The following table is a reconciliation
of net income (loss) (our most directly comparable financial measure presented in accordance with GAAP) to non-GAAP net income:

Nine Months Ended September 30,

($ in thousands)

2017

2016

Net income (loss)

$

66

$

(17

)

Non-cash interest and finance expense

28

236

Stock-based compensation

2,496

3,754

Non-recurring facility exit charges

-

670

Deferred income tax provision (benefit)

1,704

(3

)

Non-GAAP net income

$

4,294

$

4,640

The following table is a reconciliation
of diluted earnings (loss) per share (our most directly comparable financial measure presented in accordance with GAAP) to non-GAAP
diluted EPS:

Nine Months Ended September 30,

2017

2016

Diluted earnings (loss) per share

$

0.00

$

(0.00

)

Non-cash interest and finance expense

0.00

0.01

Stock-based compensation

0.13

0.20

Non-recurring facility exit charges

-

0.03

Deferred income tax provision (benefit)

0.09

(0.00

)

Non-GAAP diluted EPS

$

0.22

$

0.24

Non-GAAP weighted average diluted shares

18,896,418

19,071,332

The following table is a reconciliation
of basic weighted average shares outstanding (presented in accordance with GAAP) to non-GAAP weighted average diluted shares:

Nine Months Ended September 30,

2017

2016

Basic weighted average shares

18,530,963

18,608,034

Effect of exercising warrants

364,247

435,298

Effect of exercising stock options

1,208

28,000

Non-GAAP weighted average diluted shares

18,896,418

19,071,332

The following table is a reconciliation
of net income (loss) (our most directly comparable financial measure presented in accordance with GAAP) to Adjusted EBITDA:

Nine Months Ended September 30,

($ in thousands)

2017

2016

Net income (loss)

$

66

$

(17

)

Depreciation and amortization

1,173

1,172

Interest and finance expense

1,040

1,427

Income tax provision (benefit)

1,704

(3

)

State and local franchise taxes

81

75

Stock-based compensation

2,496

3,754

Non-recurring facility exit charges

-

670

Adjusted EBITDA

$

6,560

$

7,078

23

Liquidity and Capital Resources

Liquidity

Our principal capital requirements have
been to fund working capital needs, acquire new brands, and to a lesser extent, capital expenditures. At September 30, 2017 and
December 31, 2016, our cash and cash equivalents were $8.27 million and $14.13 million, respectively.

Restricted cash at September 30, 2017 and
December 31, 2016 consisted of (i) $1.11 million of cash deposited with Bank Hapoalim B.M. (“BHI”) as collateral for
an irrevocable standby letter of credit associated with the lease of our current corporate office and operating facilities at 1333
Broadway, New York City, and (ii) $0.40 million of cash held as a security deposit for the sublease of our former corporate offices
at 475 Tenth Avenue, New York City by us to a third-party subtenant.

We expect that existing cash and operating
cash flows will be adequate to meet our operating needs, debt service obligations (including debt service under the Amendment to
the Loan Agreement), and capital expenditure needs, for at least the twelve months subsequent to the filing date of this Quarterly
Report on Form 10-Q. We front-loaded our 2017 Term Loan principal payments whereby we paid down $5.75 million in the Current Nine
Months, with no other payments due during the remainder of this year.

We are dependent on our licensees for substantially
all of our revenues, and there is no assurance that the licensees will perform as projected. Our business operating model does
not require significant capital expenditures.

Our contingent obligation related to the
C Wonder Brand (see Note 4, Debt in the Unaudited Condensed Consolidated Financial Statements) is payable in stock or cash, at
the Company’s discretion. Payment of this obligation in stock would not affect our liquidity.

Changes in Working Capital

Our working capital (current assets less
current liabilities) was $11.13 million and $11.53 million as of September 30, 2017, and December 31, 2016, respectively. Commentary
on the components of our cash flows for the Current Nine Months as compared with the Prior Year Nine Months is set forth below.

Operating Activities

Net cash provided by operating activities
was approximately $2.33 million in the Current Nine Months, compared with net cash provided by operating activities of approximately
$6.77 million in the Prior Year Nine Months.

The Current Nine Months cash provided
by operating activities was primarily attributable to the combination of net income of $0.07 million and non-cash expenses of
approximately $5.54 million, partially offset by the net change in operating assets and liabilities of approximately $(3.28)
million. Non-cash expenses mainly consisted of $2.50 million of stock-based compensation, $1.70 million of deferred income
tax provision, $1.17 million of depreciation and amortization, and $0.17 million of amortization of debt discount and
deferred finance costs. The net change in operating assets and liabilities includes a net increase in accounts receivable of
$2.55 million, a decrease in accounts payable, accrued expenses and other current liabilities of $1.24 million, primarily
attributable to bonus payouts and overall timing of payments, and an increase in other liabilities of $0.46 million primarily
due to deferred rent related to the lease of our corporate office and operations facility.

24

The Prior Year Nine Months’ cash
provided by operating activities was due to the combination of a net loss of $(0.02) million, non-cash expenses of $5.95 million,
and the net change in operating assets and liabilities of $0.84 million. Non-cash expenses mainly consisted of $3.75 million of
stock-based compensation, $1.17 million of depreciation and amortization, $0.38 million of amortization of debt discount and deferred
finance costs, and a non-cash charge of $0.65 million related to the exit from our former leased office facilities. The net change
in operating assets and liabilities included an increase in accounts payable, accrued expenses and other current liabilities of
$1.31 million, largely due to withholding taxes payable related to shares surrendered for taxes on vested stock awards; and an
increase in other liabilities of $1.13 million related to the lease of our new corporate offices and operations facility, and the
sublease of our former offices; partially offset by an increase in accounts receivable of $1.21 million, primarily attributable
to the increase in revenues.

Investing Activities

Net cash used in investing activities for
the Current Nine Months was approximately $0.19 million, compared with approximately $1.94 million in the Prior Year Nine months.
Cash used in investing activities for both the Current Nine Months and Prior Year Nine Months was primarily attributable to capital
expenditures, which were higher in the Prior Year Nine Months due to the build-out of our current corporate offices and operations
facility (which we relocated to in June 2016).

Financing Activities

Net cash used in financing activities for
the Current Nine Months was approximately $8.00 million, primarily attributable to payments on our senior term debt obligation
of $5.75 million, payment on our IM Seller Note obligation of $1.43 million, and shares repurchased related to vested restricted
stock in exchange for withholding taxes of $0.81 million.

Net cash used in financing activities for
the Prior Year Nine Months was approximately $6.13 million, primarily attributable to payments on our senior term debt obligations
of $3.13 million, payment on our IM Seller Note obligation of $1.50 million, shares repurchased related to vested restricted stock
in exchange for withholding taxes of $1.21 million, payment of the QVC Earn-Out obligation of $0.25 million, and payment of deferred
finance costs of $0.07 million.

Other Factors

We continue to seek to expand and diversify
the types of licensed products being produced under our brands. We plan to continue to diversify the distribution channels within
which licensed products are sold, in an effort to reduce dependence on any particular retailer, consumer, or market sector within
each of our brands. The Mizrahi brand, H Halston brand, and C Wonder brand have a core business in fashion apparel and accessories.
The Ripka brand historically has been focused on fine jewelry, which we believe helps diversify our industry focus while at the
same time complements, expands on, and grows our overall business relationship with QVC.

In May 2017, we entered into a mutual agreement
with QVC to terminate our interactive television license agreement for the C Wonder brand, under which QVC will remain obligated
to pay royalties to us through January 2018, and QVC will retain exclusive rights with respect to C Wonder branded products for
interactive television, excluding certain permitted international entities, through May 2018. We are pursuing new distribution
channels and licensing partners, and intend to enter into new contractual agreements for the C Wonder brand.

In April 2016, we brought the IMNYC Isaac
Mizrahi, H Halston, and Highline Collective brands to Lord & Taylor and Hudson’s Bay department stores through our fast-to-market
production platform, “virtual vertical”. We launched the H Halston brand at Dillard’s department stores through
our fast-to-market production platform in March 2017, and plan to launch certain products under our IMNYC Isaac brand at Dillard’s
retail stores in September. We also intend to seek new opportunities, including expansion through interactive television, our “virtual
vertical” production platform, additional domestic and international licensing arrangements, and acquiring additional brands.

During this year, we have made great progress in planning and implementing our integrated technology platform which will position
us with the most advanced technology-based design and production platform that completely digitizes design, merchandising,
and production supply lines. These advancements strategically position us to take advantage of solid growth opportunities
ahead as an industry leader supplying solutions for many of today's retail challenges.

25

Our success, however, will still remain
largely dependent on our ability to build and maintain our brands’ awareness and contract with and retain key licensees,
as well as our licensees’ ability to accurately predict upcoming fashion and design trends within their respective customer
bases and fulfill the product requirements of their particular retail channels within the global marketplace. Unanticipated changes
in consumer fashion preferences and purchasing patterns, slowdowns in the U.S. economy, changes in the prices of supplies, consolidation
of retail establishments, and other factors noted in “Risk Factors” in our Annual Report on Form 10-K for the year
ended December 31, 2016 as filed with the SEC could adversely affect our licensees’ ability to meet and/or exceed their contractual
commitments to us, and thereby adversely affect our future operating results.

Effects of Inflation

We do not believe that the relatively moderate
rates of inflation experienced over the past two years in the United States, where we primarily compete, have had a significant
effect on revenues or profitability. If there were an adverse change in the rate of inflation by less than 10%, the expected effect
on net income and cash flows would be immaterial.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements
that have or are reasonably likely to have a current or future material effect on our financial condition, results of operations,
or liquidity.

Critical Accounting Policies

The preparation of our unaudited condensed
consolidated financial statements in conformity with GAAP requires management to exercise judgment. We exercise considerable judgment
with respect to establishing sound accounting policies and in making estimates and assumptions that affect the reported amounts
of our assets and liabilities, our recognition of revenues and expenses, and disclosure of commitments and contingencies at the
date of the financial statements. We evaluate our estimates and judgments on an on-going basis. We base our estimates and judgments
on a variety of factors, including our historical experience, knowledge of our business and industry, and current and expected
economic conditions that are believed to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We periodically
re-evaluate our estimates and assumptions with respect to these judgments and modify our approach when circumstances indicate that
modifications are necessary. While we believe that the factors we evaluate provide us with a meaningful basis for establishing
and applying sound accounting policies, we cannot guarantee that the results will always be accurate. Because the determination
of these estimates requires the exercise of judgment, actual results could differ from such estimates.

Please refer to our Annual Report on Form
10-K for the year ended December 31, 2016, filed with the SEC on March 24, 2017, for a discussion of our critical accounting policies.
During the Nine months ended September 30, 2017, there were no material changes to these policies.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable to smaller reporting companies.

ITEM 4.

CONTROLS AND PROCEDURES

A. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES:

Our management, under the supervision and
with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”)) as of September 30, 2017, the end of the period covered by this report. Based
on, and as of the date of such evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that our
disclosure controls and procedures were effective as of September 30, 2017 such that the information required to be disclosed in
our SEC reports is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and
is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as
appropriate, to allow timely decisions regarding required disclosure.

26

B. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING:

There have not been any significant changes
in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the
fiscal quarter ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.

27

PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

In the ordinary course of business, from
time to time we become involved in legal claims and litigation. In the opinion of management, based on consultations with legal
counsel, the disposition of litigation currently pending against us is unlikely to have, individually or in the aggregate, a materially
adverse effect on our business, financial position or results of operations.

ITEM 1A.

RISK FACTORS

We operate in a highly competitive industry
that involves numerous known and unknown risks and uncertainties that could impact our operations. The risks described in Part
I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2016 are not the only
risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may
materially adversely affect our financial condition and/or operating results.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There were no sales of unregistered or
registered securities during the nine months ended September 30, 2017.

During the three months ended March 31,
2017, pursuant to a consulting agreement, we issued 50,000 shares of common stock to Jones Texas, Inc., of which Edward Jones,
III, a director of our Company, is the controlling shareholder. On June 18, 2017, we issued an additional 28,334 shares of common
stock to Jones Texas, Inc., pursuant to the same consulting agreement. The issuances were not considered a “public offering”
as defined in Section 4(a)(2) of the Securities Act due to the insubstantial number of persons involved, size of the offering,
manner of the offering, and number of securities offered. We did not undertake an offering in which we sold a high number of securities
to a high number of investors. In addition, Jones Texas, Inc. had the necessary investment intent as required by Section 4(a)(2)
because it agreed to receive share certificates bearing a legend stating that such securities are restricted pursuant to Rule 144
of the Securities Act. This restriction ensures that these securities would not be immediately redistributed into the market and
therefore not be part of a “public offering.” Based on an analysis of the above factors, the issuances of these shares
met the requirements to qualify for exemption under Section 4(a)(2) of the Securities Act for these transactions.

The following table provides information
with respect to shares of common stock we repurchased during the quarter ended September 30, 2017:

Period

Total Number of
Shares Purchased

Average Price per Share

Total Number of Shares
Purchased as Part of a Publicly Announced Plan or Program

September 1, 2017 to September 30, 2017 (i)

2,200

$

3.70

-

(i)

The shares were exchanged from employees and directors in connection with the income tax withholding
obligations on behalf of such employees and directors from the vesting of restricted stock.

1. I have reviewed this Quarterly Report
on Form 10-Q for the quarter ended September 30, 2017 of Xcel Brands, Inc. (the “Company”).

2. Based on my knowledge, this quarterly
report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by
this quarterly report;

3. Based on my knowledge, the financial
statements, and other financial information included in this quarterly report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officer
and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant
and have:

a) Designed such disclosure controls and
procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;

b) Designed such internal control
over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change
in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter
that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;
and

5. The registrant’s other certifying
officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's
auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material
weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material,
that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

1. I have reviewed this Quarterly Report
on Form 10-Q for the quarter ended September 30, 2017 of Xcel Brands, Inc. (the “Company”).

2. Based on my knowledge, this quarterly
report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by
this quarterly report;

3. Based on my knowledge, the financial
statements, and other financial information included in this quarterly report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officer
and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:

a) Designed such disclosure controls and
procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;

b) Designed such internal control
over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change
in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter
that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;
and

5. The registrant's other certifying officer
and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors
and the audit committee of the Company's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material
weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material,
that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

November 13, 2017

By:

/s/ James Haran

Name: James Haran

Title: Chief Financial Officer and Vice President

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT
OF 2002

In connection with the Quarterly Report
of Xcel Brands, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2017 as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), I, Robert W. D’Loren certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1) The Report fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report
fairly presents, in all material respects, the financial condition and results of operations of the Company.

November 13, 2017

By:

/s/ Robert W. D’Loren

Name: Robert W. D’Loren

Title: Chairman and Chief Executive Officer

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT
OF 2002

In connection with the Quarterly Report
of Xcel Brands, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2017 as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), I, James Haran, certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1) The Report fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report
fairly presents, in all material respects, the financial condition and results of operations of the Company.